Murdoch has lost his magic touch at News Corp

Wednesday 7 October 2009 06:50 BST

Lost his touch? Rupert Murdoch

I am sure that Rupert Murdoch has all his marbles. There are no obvious signs of mental decay and, at a physical level, despite those craggy looks, he clearly keeps himself in trim. In fact, he seems to be in excellent shape for a man of 78.

But I am beginning to wonder if he has lost the plot by putting in jeopardy his life's work, namely his gigantic global media business, News Corporation. It sounds absurd even to suggest it. After all, his is no ordinary company. In terms of revenue, it is the world's third-largest media conglomerate (after Time Warner and Disney), with an £18.25 billion turnover last year.

It owns so much. In the US alone, it has a Hollywood movie studio, a television network, huge cable holdings including the controversial Fox News, one of the country's leading book publishers and, of course, the Wall Street Journal.

In Britain, News Corp publishes three market-leading national papers, The Sun, News of the World and Sunday Times, plus one of the world's most famous titles, The Times. It also controls BSkyB, the satellite television company that has been replicated in countries elsewhere.

His Asian satellite television service claims to have 300 million viewers in 53 countries. Murdoch's newspapers and magazines dominate the Australian market too.

Yet I have barely touched the surface of News Corp's total holdings, which run to many pages of closely typed script. It is no wonder that in his company's annual report in 1999 Murdoch was able to boast: "Our reach is unmatched around the world. We're reaching people from the moment they wake up until they fall asleep."

Ten years on, that reach has extended even further because News Corp has gone on expanding. But sometimes it has done so with what appears to be reckless abandon.

Now, amid the recession, Murdoch is facing up to an uncomfortable reality. His company lost £2.13 billion last year, doing much worse than analysts had predicted. Most of those losses were directly attributable to his company's acquisition of the Wall Street Journal and its clumsy move into digital media.

In February, in announcing an eye-watering £5.25 billion writedown, News Corp said £1.9 billion of that total reflected a decline in the value of the company's newspaper unit.

Analysts were quick to seize on the main culprit — Dow Jones, the WSJ's publisher. They recognised that Murdoch's £2.5 billion spend in buying the company was a significant overpayment, especially when there were no other serious bidders at the time.

In August, when the full-year results up to June 2009 emerged, another factor also became clear. Fox Interactive Media, the digital arm of Murdoch's company, had lost a bucket of money. MySpace, the social networking site, was alone responsible for a loss of £227 million to the bottom line.

This was hardly a surprise. Almost from the moment News Corp acquired MySpace for £363 million in 2005, it began to lag behind Facebook. Then Bebo began to catch up. Finally came Twitter. It was clear that Murdoch had bought a digital pup and, as with Dow Jones, had overpaid for it.

It's sobering to recall that Fox Interactive spent about £880 million in 2005 alone in acquiring websites, most of which have come to naught.

Meanwhile, the bloom has come off Murdoch's traditional newsprint empires. The New York Post, much beloved by its boss if not by too many readers, has run into the sand. There has even been talk of merging it with its rival, the Daily News.

In the UK, the Sunday Times, once the great cash cow of Wapping, is no longer turning a profit. Its Wapping stablemate, The Times, has been piling up losses for years. Then, six weeks ago, Murdoch was forced into an embarrassing U-turn by closing his free title, The London Paper, ceding victory to London Lite, owned by Associated Newspapers (part-owner of the Evening Standard). Murdoch had lost his first major newspaper battle.

It would be foolish to ignore the context. All media companies in the US and Britain have been badly hit by the recession, whether large or small. Time Warner also announced a huge write-down while Disney reported a sharp decline in earnings.

All have been undermined by the retreat of advertising.

But Murdoch has previously been the media mogul who bucked trends. Though he has been in trouble before, notably when the banks kept him afloat in the 1992 recession, he has always dealt rationally with the crises.

Now he appears to have lost his cool by adopting a strategy to escape his problems that is anything but guaranteed to reverse his fortunes.

He is aiming to charge people for access to his websites. He has declared war on the search engines and aggregators. The mogul has decided to play King Canute.

To bring this about he is hoping to persuade other publishers to join him or, at least, follow his lead. Whether this quasi-cartelisation happens or not, he is determined to go it alone.

Within Wapping, where Murdoch's decision to split the web presences of The Times and Sunday Times has already caused untold chaos and expense because of the work involved, there is now consternation about the building of pay walls.

One senior executive, who agrees with Murdoch about the problems caused by Google and the free transmission of editorial material, told me: "None of us can see how charging for content will work in practice."

But is Rupert calling the tune? It now seems clear that his son, James, took the lead in deciding that The Sun should drop its support for Gordon Brown in favour of David Cameron. That may well be the right decision, but in former days the old man would never have succumbed to advice from others.

I wonder whether the News Corp shareholders who attend next Friday's annual meeting will dare to ask just who is running the company, and why it has run into such trouble.